Why ecosystem-as-a-service is the next frontier in finance

Digital banking has been developing apace, driven by growing consumer demand for smarter solutions to facilitate seamless transactions. Where we previously relied on traditional banking methods that proved slow, costly, and restrictive (for banks and consumers), fintech has thankfully emerged to fill those gaps. In the past few years, financial institutions (FIs) have begun to appreciate that these smaller, agile technology companies are equipped to deliver more efficient and cost-effective add-on services, which give them an edge in adding value to their customers. As a result, increasing numbers of FIs are outsourcing their digital banking strategies. However, the outsourcing model also presents challenges because few fintechs still have the required regulatory approvals to support clients in their respective geographical markets. This means that the client has to work with multiple providers to turn their products into reality and reach the customer; that’s where financial ecosystem-as-a-service (ESaaS) comes in.

Financial ESaaS can be defined as a collective of API-first finech solutions that form a single route to market. Potential clients include banks, governments, FIs, and fintechs who want to enhance their tech stack and put all the pieces of the fiscal puzzle together.

Benefits across the board
Let’s consider that a challenger bank would normally need to sign an average of between six to 12 contracts to break into the market. It’s easy to see how numerous different platforms, layers of setup fees, and various contracts become hard to manage. In effect, they are swapping old issues for new ones. What financial ESaaS offers is a flexible, cross-border, turn-key banking and payments solution. The modular architecture gives FIs a choice of interchangeable components that can be designed and constructed depending on their needs.

In a world where data powers everything we do, one of the major benefits of an ecosystem is that it supplies a single tech stack entry point to leverage data from the platform. This helps FIs understand their end-users better and provide a more personalised, streamlined experience throughout the financial lifecycle. The link between CX for customer loyalty is clear, plus there are also significant OpEx savings to be derived from using one integrated platform.

Accelerating growth in open banking
The digital transformation shaping today’s banking industry depends heavily on data analytics. As institutions race to keep up with the speed of change, pulling in various partners as they go, valuable data gets scattered, making it hard to generate meaningful insights. The McKinsey Global Institute found economies that embrace financial data sharing could see GDP gains of between 1-5 per cent by 2030. But, to effectively manage a global digital banking network, we need to have better centralised access to shared data in order to improve strategies and maximise the benefits. It’s about more than just one organisation harnessing the data it creates, instead tapping into vast wells of external data available across every transactional touchpoint. Open banking and open finance are game-changers for financial freedom, and this access and analysis of disparate data sources is the essence of an ecosystem.

Connecting the dots for financial inclusion
Much of the technological progress in finance has focused on further improving the situation for people who already have good access to financial products. Yet, a massive portion of the world’s population remains unbanked – more than 1.7 billion adults according to the World Bank – and the impact on quality of life is severe. Day-to-day financial management, i.e., making simple purchases, remitting a salary, managing transactions, and sending money transfers, are highly complex and time-consuming. Beyond the significant toll on the individual, financial exclusion is a massive global issue because it slows down countries’ economic growth and development.

When FIs are working with one holistic ecosystem, the available data makes it much easier for them to understand and address the specific challenges that the unbanked face. With this information they can tailor their approach and develop innovative products for this demographic at a reasonable cost. In locations where the lack of infrastructure makes it difficult to visit a bank for example, these tailored products then open up a new realm of possibilities in areas such as KYC, onboarding, card issuance, and social disbursements. Citizens that are part of the financial system are better-connected, empowered to contribute, and equipped to engage with the world around them.

Justin Henry is the executive director at KMMRCE Pay